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CIRCULAR No

CIRCULAR No. 130/1998/TT-BTC OF SEPTEMBER 30, 1998 GUIDING THE HAND-OVER, TAKE-OVER AND SETTLEMENT OF FINANCIAL PROBLEMS OF STATE ENTERPRISES DURING MERGER OR CONSOLIDATION

In furtherance of Decision No. 1179/1997/QD-TTg of December 30, 1997 of the Prime Minister on a number of policies and measures for the control of the socio-economic development plan and the 1998 draft State budget; and Directive No.20/1998/CT-TTg of April 21, 1998 of the Prime Minister on promoting the rearrangement and renewal of State enterprises; the Ministry of Finance hereby provides the following guidances on the hand-over, take-over and settlement of financial problems of State enterprises during their merger or consolidation:

I. GENERAL PRINCIPLES

1. General provisions on merger and consolidation of enterprises

1.1. Merger of enterprises is the act whereby one or many enterprises is/are amalgamated into a new enterprise by decision of the competent State agency. Enterprises to be merged into a new enterprise are called merged enterprises which shall, after the merger, no longer have legal person status. The enterprise integrating other enterprises is the accepting enterprise which shall retain its legal person status after the merger. The civil rights and obligations of the merged enterprises shall be transferred to the accepting enterprise.

1.2. Consolidation of enterprises means two or many enterprises combine with each other to create a new enterprise by decision of the competent State agency. Enterprises joining the consolidation are called consolidated enterprises which shall, after the consolidation, no longer have legal person status. The enterprise established on the basis of the consolidated enterprises is called new enterprise which shall have a new legal person status. The civil rights and obligations of the consolidated enterprises shall be transferred to the new enterprise.

1.3. Conditions for merger or consolidation of State enterprises:

- The enterprises eligible for merger or consolidation must be those already included in the plans for rearrangement of State enterprises of the ministries, branches and People�s Committees of the provinces and cities, and such plans have been ratified by the competent persons.

- The merger or consolidation must not reduce the business efficiency and competitiveness of the accepting or new enterprise.

- The merger or consolidation shall not apply to enterprises where signs of bankruptcy are found (which suffer losses for two consecutive years or fall into so difficult financial situation that they cannot pay their due debts or fully pay wages to the personnel for three consecutive months, according to the labor agreements and labor contracts). Such enterprises shall be dealt with according to the Law on Bankruptcy of Enterprises and Decree No.189-CP of December 23, 1994 of the Government guiding the implementation of the Law on Bankruptcy of Enterprises.

1.4. The person competent to decide the merger or consolidation of enterprises is the person who has signed the decision on the establishment of such enterprises. The procedures and order for the merger or consolidation of enterprises shall comply with the provisions of Decree No.50-CP of August 28, 1996 and Decree No.38-CP of April 28, 1997 of the Government on the establishment, re-organization, dissolution and bankruptcy of State enterprises.

2. Principles for the settlement of financial problems in merger or consolidation of enterprises

2.1. To clearly determine the responsibilities of persons in charge of the management and control of the merged enterprises or the consolidated enterprises as well as the accepting enterprise or new enterprise.

2.2. The merged or consolidated enterprises shall have to hand over fully and intact their properties and capital, including the right to use land still under their management and use by the time of the hand-over to the accepting or new enterprise.

2.3. The accepting enterprise or new enterprise shall have the right and obligation to accept fully and intact the capital, properties, the debts to be recovered and the payable debts of the merged or consolidated enterprises.

2.4. The accepting enterprise or new enterprise shall have to inherit and settle financial problems on capital, properties, the debts to be recovered and the payable debts of the merged or consolidated enterprises.

II. SPECIFIC PROVISIONS

1. Property inventory and classification

1.1. The merged or consolidated enterprises shall have to inventory all properties and capital under their management and use, clearly determine the amount of actual, redundant, diminished or lost properties; compare the debts to be recovered and the payable debts, determine the bad debts and the payable but unclaimed debts, the reasons and responsibilities of collectives and individuals for the decrease or loss of properties as well as for the bad debts as currently prescribed by law; close the accounting books, make financial statements and clearly define financial problems to be settled before the hand-over to the accepting or new enterprise. The time to inventory properties, compare debts and make financial statements shall be the time of the merger or consolidation of enterprises.

1.2. The merged or consolidated enterprises shall, together with the accepting or new enterprise, have to classify properties into categories such as properties temporarily unused, redundant properties, properties for future liquidation and degraded properties; and clearly determine the reasons as well as responsibilities of collectives and individuals for the degraded properties according to current regulations.

The classification of properties shall be conducted simultaneously with the inventory of properties in the presence of representative(s) of the accepting enterprise or new enterprise and must be recorded in writing and signed by the competent persons of the merged or consolidated enterprise and the accepting or new enterprise.

2. Hand-over and take-over

2.1. Basing themselves on the financial statements attached with the records of property inventory and classification and records on the debt comparison and acknowledgment, the merged or consolidated enterprises shall have to hand over fully and intact their properties, including the land use right to the accepting or new enterprise, together with all relevant dossiers and documents.

2.2. The accepting enterprise or new enterprise shall have the right and obligation to accept all properties (including the damaged and degraded properties, redundant properties and properties for liquidation), the debts to be recovered (including bad debts), payable debts and accumulative losses of the merged or consolidated enterprises.

2.3. After the properties and debts have been handed over, the settlement of all problems related to properties, debts and accumulative losses shall come under the responsibility of the accepting or new enterprise.

2.4. The time of the hand-over and acceptance of properties shall be the time of inventorying them (the hand-over records may be signed later but not later than one month after inventory). During the hand-over period, the merged or consolidated enterprises shall have to preserve all properties and prevent them from being damaged, deficient or lost.

2.5. The hand-over and acceptance must be recorded in writing and signed by the authorized representatives of the merged or consolidated enterprise and the accepting or new enterprise. The authorized representative of the handing-over party shall be the director and chief accountant of the merged or consolidated enterprise; the authorized representative of the accepting or new enterprise shall be the director and chief accountant of such enterprise

3. Handling problems of the merged or consolidated enterprises

3.1. With regard to problems arising before the hand-over:

In the course of inventorying and classifying properties, comparing and acknowledging debts, the merged or consolidated enterprises shall have to promptly settle the problems under their responsibility and competence before handing over such properties and debts to the accepting or new enterprise:

- With regard to the debts to be recovered: To promptly recover the collectible due debts; clearly determine the reasons and responsibilities of collectives and individuals for the bad debts; and promptly settle bad debts with full legal basis according to the current financial mechanism.

- With regard to deficient and lost properties: To clearly determine the reasons and responsibilities of collectives and individuals and ask the concerned persons to make compensation in accordance with the provisions of law. For deficient and lost properties for which insurance has been purchased, the concerned enterprise shall have to meet the insurance agency in order to determine the level of compensation. The difference of value between losses and compensations shall be dealt with according to the current financial mechanism.

- To promptly sell or liquidate the degraded properties, redundant properties or properties for liquidation for capital recovery. The procedures for liquidation and sale of properties as well as for the handling of difference between the property sale and/or liquidation revenues minus the remaining value of properties and the sale and/or liquidation cost shall comply with current regulations.

The diminished, lost and degraded properties as well as the bad debts without sufficient basis for recovery must be all transferred to the accepting or new enterprise. The settlement of these problems shall come under the responsibility of the director, chief accountant and the concerned persons of the merged or consolidated enterprise.

3.2. With regard to problems arising after the hand-over:

a/ With regard to diminished and lost properties: The accepting enterprise or new enterprise shall have to continue handling such properties in accordance with the current financial settlement mechanism:

- The person(s) who has caused the decrease or loss of properties shall have to make compensation therefor;

- To request the insurance company to make compensation (for properties for which insurance has been purchased).

- To use the financial reserve fund to make up for such deficiency or loss.

- To include the cost thereof in the business expenses if the above-mentioned sources cannot cover the deficiency or loss.

b/ Degraded properties, redundant properties and properties for liquidation:

The accepting enterprise or new enterprise shall promptly sell or liquidate such properties for capital recovery. The procedures for liquidation, and sale shall comply with current regulations. The difference between the sale and/or liquidation revenues and the remaining value of properties, including the liquidation and/or sale cost shall be dealt with in accordance with the current financial mechanism.

c/ Payable debts: The accepting enterprise or new enterprise shall have to pay due debts to the creditors according to the commitments, including debts payable to the tax agencies, budget and public employees or settle such debts according to current regulations. The unclaimed payable debts shall be accounted in the irregular incomes of the enterprise.

d/ For the debts to be recovered: The accepting enterprise or new enterprise shall have to supervise and urge the collection of the debts to be recovered according to the records on debt comparison and acknowledgment and hand-over. The enterprise shall be entitled to make depreciation for the establishment and account into business expenses the reserves for bad debts they have accepted. The unrecoverable due debts shall be dealt with according to current regulations.

e/ For losses: The accepting enterprise or new enterprise shall be entitled to transfer to the subsequent year losses they have taken over from the merged or consolidated enterprises as prescribed by law. The loss transfer period shall be counted from the time of the take-over. During the time of the loss-transfer as prescribed by law the enterprise shall be compensated with the pre-tax profits. Losses remaining after the loss-transfer period shall be covered by the after-tax profit.

III. RESPONSIBILITY OF ENTERPRISES DURING MERGER OR CONSOLIDATION

1. For the merged or consolidated enterprises

- Right after receiving a decision on the merger or consolidation from the competent State agency, the enterprises to be merged or consolidated shall have to promptly conduct the inventory and classification of properties, compare and acknowledge debts and fill the necessary procedures as prescribed by law for the prompt hand-over to the accepting enterprise or new enterprise.

- If an enterprise fails to conduct the inventory and classification of properties, compare and acknowledge debts, thus delaying or dragging the hand-over and causing difficulties to the control and operation of the accepting or new enterprise, and causing damage to such enterprise�s properties, the director of the merged or consolidated enterprise shall have to take full responsibility before law for losses caused by the delayed hand-over.

- Before the hand-over, the merged or consolidated enterprise shall have to preserve all the enterprise�s properties to prevent them from being damaged, diminished or lost. The director of the merged or consolidated enterprise shall take responsibility before law for any deficiency or loss of properties before the hand-over.

2. For the accepting or new enterprise

- The accepting or new enterprise shall have, together with the merged or consolidated enterprises to inventory and classify properties and at the same time take over all properties of the merged or consolidated enterprises.

- To accept fully and intact capital, properties, the to-be-recovered debts and payable debts of the merged or consolidated enterprises; and at the same time, to inherit and settle financial problems of the merged or consolidated enterprises according to current regulations.

- If the acceptance and hand-over of properties fail to comply with the set regulations, thus causing losses of enterprises� properties, the director and chief accountant of the accepting or new enterprise and the concerned persons shall have to make compensation therefor.

III. IMPLEMENTATION PROVISIONS

This Circular takes effect 15 days after its signing. In the course of implementation, if any problem arises, it should be reported by the concerned agency or enterprise to the Ministry of Finance for consideration and additional guidance.

For the Minister of Finance

Vice Minister

TRAN VAN TA